Business Insurance and Risk Management
What the exam tests
Business Insurance and Risk Management tests commercial property and liability coverage, business income, key-person and buy-sell planning, and workers compensation. Expect a business-income coinsurance calculation.
Core rules
- Business income coverage replaces lost net income and continuing expenses during the period of restoration. Extra expense pays costs to continue operations. Coinsurance applies to the business-income limit.
- Key-person life or disability insurance protects the business against the loss of a critical employee. Buy-sell insurance funds a cross-purchase or entity purchase and sets a valuation method.
- Workers compensation provides statutory benefits for work-related injury and is generally the exclusive remedy against the employer.
- Commercial general liability covers third-party bodily injury and property damage. EPLI covers employment practices claims; cyber policies cover data breaches and network interruptions.
- A captive is a licensed insurer owned by a business to retain and finance risk.
Worked example
A business has a $600,000 business-income limit with an 80% coinsurance requirement. Required insurance is $480,000; the business carries $480,000. A six-month restoration at $50,000 monthly produces a $300,000 loss, paid in full subject to the deductible. If the business carried only $360,000, recovery would be ($360,000 ÷ $480,000) × $300,000 = $225,000.
Traps that cost marks
Business income does not replace lost market share or permanent customer loss. Key-person insurance is not the same as a buy-sell agreement. Workers compensation generally bars employee tort suits against the employer. Entity buy-sell and cross-purchase have different tax bases.